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3 Totally Preventable Causes of Stockouts (and How to Avoid Them)

Stockouts almost always make it to the “worst nightmare” lists of retailers, and for good reason. Not only do they lead to lost sales, out-of-stocks also result in poor customer satisfaction and lower loyalty levels.

Shoppers often feel let down when they encounter an out-of-stock message, and we know that as a retailer, the last thing you want is to disappoint customers.

Fortunately though, there are a number of solutions to your out-of-stock woes. Many causes of stockouts can be prevented by taking steps to better understand your business and products, and by refining certain store processes.

To give you a better idea of how you can accomplish this, below are 3 common causes of stockouts and pointers on how you can sidestep them:

1. Inaccurate data

It’s very easy to run into inaccuracies when dealing with inventory. Between shipment variances, misplaced products, returns, and stolen goods, retailers find that the inventory numbers they have on paper often don’t match what they have in their stores.

Such discrepancies can lead to merchants mistakenly thinking that they have an item in stock when they don’t, so they end up re-ordering the wrong products or quantities.

How can you address this? Consider the following:

a. Use a modern inventory system - The first step to avoiding discrepancies is to implement an electronic (ideally cloud-based) inventory system. Keeping track of products using a pen and paper, isn’t just time-consuming, it can also lead to mistakes.

It’s best to use a point-of-sale or inventory system that automatically modifies inventory levels as you ring-up customers, so you won’t have to worry about manually updating your database. Such solutions are also extremely helpful if you have multiple locations because they allow you to manage multiple stores from one place.

b. Stay organized and vigilant – Of course, modern inventory systems can only go so far. While a nifty solution can keep your databases synced, it can’t deter shoplifters nor can it stop suppliers from delivering the wrong quantities.

This is where your diligence and organizational skills will come in. Get to the root of your inventory discrepancies. Is it an issue with your vendors? Are you dealing with theft? Whatever the case may be, find the reasons why the numbers aren’t adding up and take the necessary steps to stop them.

If it’s a matter of vendor discrepancies, for example, you may want to make changes with how deliveries are handled in your store. Perhaps you need to reschedule shipments to make sure that deliveries don’t happen all at once, or maybe you need to assign someone to double check the packing slips.

Dealing with theft? It could be time to upgrade your security system or re-arrange your store to make it easier for associates to keep an eye on shoppers.

Vend Tip -

c. Consider RFID(Radio Frequency Identification) - Other retailers are taking on a mor

e hi-tech approach when it comes to maintaining inventory accuracy. Many are now using RFID–a technology that can store and track product information using a chip embedded in an item’s tag or packaging.

RFID enables merchants to count, monitor, and search for merchandise using a handheld scanner (see image above), making it faster and easier for them to track down where each item is.

“People manually counting items in the supply chain take too much time; it is too expensive and is also fraught with error,” writes Will Roche of Xterprise on RetailSoulutionsOnline.com. According to him, RFID technology is the top solution for inventory data inaccuracies especially for apparel and footwear retailers.

2. Failure to re-order in a timely manner

This issue is pretty straightforward: products are flying off the shelves faster than you can re-stock, and this results in you selling out of in-demand items. How can you prevent it? Here are a couple of ways:

a. Find OOS (out of stock) patterns - Try to identify OOS trends in your store. A study by P&G found that OOS “tend to form patterns such as day of week,” and retailers can find them by regularly auditing their inventory and taking note of the days and times of the week when they usually experience stockouts.

By looking at the data, it looks like OOS for this particular store peaks during Friday afternoon, Saturday at noon, and Sunday late afternoon. With this data in mind, the retailer can then schedule to have products delivered and replenished at just the right times to ensure that they don’t run into out-of-stocks.

b. Implement demand forecasting - As the term clearly indicates, this process is all about anticipating demand so you can determine when to reorder merchandise.

You can try to forecast demand on your own by using your judgement and factoring in stock turn, sell through, historical sales data, and other components such as promotions, seasonality, economic state, etc. Crunching these numbers should give you some insights into how products are going to perform.

Manually trying to predict demand however, can be tedious and opens up room for human error, which is why we recommend that you make use of apps that can automatically collect and analyze data for you.

Most modern POS systems come with inventory management and reporting features that can immediately tell you what your top products are and what you need to order more of. Some solutions even offer reorder alerts that automatically notify you if stock is running low, so you can replenish as necessary.

If you need more sophisticated tools, see if you can integrate with solutions like Stitchlabs or Unleashed, which streamline your inventory process and provide deeper analytics and functionality. Having the right data at your fingertips helps you make more accurate inventory decisions so you can keep your shelves healthily stocked, and your customers happy.

Case in point: BevMo! The alcoholic beverage retailer used a solution by JustEnough to predict demand in the most efficient and cost-effective way possible.

JustEnough factored in BevMo!’s current inventory plan and demand forecast then came up with an “ordering pattern to achieve BevMo!’s targeted service levels.” They also forecasted demand for products that don’t have sales history “by linking new products to the sales history for similar existing products.” This enabled BevMo! to know which items to stock up on and the retailer was also able to localize product mixes and orders at a store level.

3. Lack of labor training or availability

You can have excellent tools and a solid inventory plan in place, but if you don’t have the right employees to implement them, you’re still going to run into stockout issues.

For instance, you may have sufficient stock in the backroom, but if your staff isn’t staying on top of replenishing the shelves, customers may assume that you don’t have the merchandise available. Or, your inventory system could be offering some great insights, but if your employees don’t know how to interpret the data, then they can’t put the information to good use.

Prevent such issues from happening by investing in three areas: people, processes, and tools.

Let’s start with the first one:

a. People - Invest in better training for your staff. See to it that they not only know how to work your system, but that they’re also aware of what data and insights to take action on. If you can, have a vendor, technology partner, or consultant conduct the training to ensure that they get the proper education.

Also note that investing in your staff isn’t just about training them. You also need to invest in their well being. Happy employees work harder, are more motivated, and produce better results, which is why retailers should keep finding ways to empower them.

b. Processes – Design a business flow detailing the inventory process in your store, then assign people to take on each step. Who’s in charge of receiving items? Who’s supposed to replenish your shelves? At what point should the staff reorder products, and who’s in charge of doing it?

Have everything down on paper. Doing so will help you and your staff understand the process and implement it correctly.

This is exactly what Chris Herbert and Christian Smith of TrackR did. In an article on Entrepreneur, they talked about how documenting their inventory process–from receiving a purchase to fulfillment–enabled them to stay on top of things.

They wrote:

We created our business flow chart Mad Men style — with no computers, email or fancy software services. The end result? We had a document that detailed all the different people needed to fulfill an order and all the necessary communications between them. We then ushered this 1950s flow chart into the 21st century by choosing some automated software.

Consider doing the same for your store. Be clear on how inventory flows in your business, write down the process, and get your staff on the same page.

For example, a lot of retailers make use of planograms to create visual representations of how products should be arranged in their store. Planograms are useful for merchandising purposes and can help retailers create the most appealing layouts. They’re also a great tool for staying on top of shelf inventory. By giving your staff a planogram to refer to, they can easily see if they need to replenish store shelves and if all the products are in the right place.

You could also consider more sophisticated tools such as in-store analytics solutions that let you measure foot traffic. Aside from allowing you to get to know your customers better, these tools can also help you staff your stores more effectively.

By knowing when your peak hours are, you can arrange staff schedules accordingly, and you won’t have to worry about not having enough people restocking the shelves or helping customers.

A great example of this in action can be seen in Superette, an apparel store that uses Vend and Swarm. According to founder James Rigden, using foot traffic analytics has helped them “with staff rostering, timing of staff breaks, timing of job allocations,” enabling them to stay on top off inventory, staffing, and customer service in one fell swoop.

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